bank interest rate calculation explained
Bank Interest Rate Calculation Explained
This banking guide helps users compare loan and savings options with clear formulas and practical repayment examples.
Bangladesh-focused guide with practical calculation workflow.
Step-by-Step Explanation
- Define principal amount, interest rate, and tenure first.
- Use monthly rate and month-based tenure for EMI or repayment logic.
- Compare at least two tenure options before deciding.
Formula
- EMI = P × r × (1+r)^n / ((1+r)^n - 1)
- Total Repayment = EMI × n
Example Calculation
- If P=500,000, monthly rate r=1%, n=36 months, EMI is around BDT 16,607.
- Total repayment is EMI × 36, and total interest is total repayment - principal.
FAQ
- Why does longer tenure lower EMI? Because payment is spread over more months.
- Does lower EMI always mean cheaper loan? No, longer tenure often increases total interest.
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